Twixt Scylla and Charybis

Alaska’s Governor, Sean Parnel,  would have Alaskans agree to oil tax reform. Many read this tax reform and an effort to move revenue from the State’s ledger to that of BigOil. As one expect, this results in a polarization and we end up with an all or nothing paradigm.  The Greeks saw their world in very colorfully and it is from them that we inherit the concept of sailing twixt Scylla and Charybdis, and we have been referencing that method of recognizing that we are on the horns of a dilemma in those terms for centuries.

But this essay is not an attempt to scold the Governor for taunting Homer’s Charybdis despite Circe’s warning (so many others have already done that so effectively,  to no avail), though in any discussion of matters Alaskan, natural resource policy is on the table. The focus here is on another aspect of “the middle”;  as  Euclid has revealed to hundreds of thousand of students, the middle is equidistant from the poles.

And at this point you are no doubt wondering whatever could be the real point, and whether we might not get to it before tea. The point, as those of you who are clever have likely already guessed, is that industry arises at those places convenient to the resources necessary. The Rust Belt, by way of example, did not arise magically. If one considers a map of the US Northeast and note the location of the iron ore, the location of coal deposits, and the transportation resources in the area,  it becomes quickly apparent why steel became king there.  And the king drove the economies of the region and the country to incredible heights.

Alaska sits on a number of prodigious reservoirs of natural gas. There are some, their eyes lit with a green glow,  who would (as quickly as someone else’s money might allow) ship all this natural gas elsewhere. Unfortunately, such a policy produces the least possible economic benefit for the people of the State of Alaska. Why?  Because the failure to use the resources in-state means Alaskans do not get the additional multiplier effects that would arise if the gas were consumed in-state.

The challenge or Alaska is not to figure out how to get rid of the gas as quickly as possible, despite the advice from BigOil accountants. The challenge is to find industries, local industries, that are viable because the gas is HERE. Japan’s growth is a reverse example of this situation. Japanese growth was largely based on Japan’s ability to import energy. Alaska has that energy in abundance, but those wishing to use that energy elsewhere want Alaskans to believe that we must sell off that energy to those smart enough to use it.  Are we, as Alaskans, really that ignorant?

Let’s compare the two policies.  On the one hand the argument is that the only way to address this resource is to pump it out and sell it as quickly as possible. Perhaps this will provide a decade or two of revenue, and there will be jobs, largely for those who come to Alaska specifically to take advantage of this policy.  On the other hand, if the resource never leaves the state,  it could fuel a variety of local industry for a much longer time period, increase Alaska’s economy by many more times, and keep the state from continuing to be a boom and bust economy, slave to the extraction industry. As Dr. Lee Huskey has often noted, a robust northern economy needs to be differentiated, and there is no escaping that means keeping BigOil in its place.

So we are on the horns of another dilemma. The safe course, the middle way, is to be the middle. Be the focal point. Be the cauldron of Alaska’s future, not the empty husk that once feted BigOil. Is Alaska up to charter its own destiny? Perhaps not as local politics suggest that those in power are short-sighted quick-buckers, preaching independence, but effecting paternalistic policies socially and economically. Perhaps John Coghill needs to have a sit-down with Jack and talk a bit about local economics…..

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One comment on “Twixt Scylla and Charybis

  1. Elstun says:

    Somewhere betwixt Scylla and Charybdis lay the horns of a dilemma, well articulated here. Alaska’s objectives may not be incompatible with Big Oil, but the are in conflict. The internal rate of return calculation for investment by the Houston Green Eyeshades (as the author points out) may require optimization during world price apices. No ConocoPhillips is NOT Alaska’s oil and gas company. Whereas Alaska’s IROR calculation is based on an endogenous horizon of a century or more! What to do, what to do. I propose the following solution: create a hydrocarbon bank which would be created by a separate bid on the so-called “heavies” that are scrubbed during conditioning when water is removed. These are the hectanes, nonanes, etc that make petrochemical raw materials for value-added industries. These would be stockpiles in highly compressed cryovaults for future development. The Second part of this is stockpiling our 12.5% royalty gas. 1/2 of that gas will supply in-state conventional needs; the other half will be dedicated to energizing the production of feedstocks with the hydrocarbon bank. This will attract private capital from all over the world to invest in the kind of future the author envisions for our State.

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